Economic progress needs more than just infrastructure

Malaysia has always placed great emphasis on upgrading and developing its infrastructure facilities such as telecommunications, utilities transport and smart buildings to improve productivity and enhance economic competitiveness.

But putting the right infrastructure in place is just one half of the equation in economic development.

The other half, which is a critical component, really, is the development of human capital.

As ICLIF Leadership & Governance Centre chief executive officer Rajeev Peshawaria puts it: “It is people, people, people at the end of the day, the competitiveness of a country depends on its human talent.”

ICLIF is of the view that Malaysia is already heading towards the right direction in terms infrastructure development. And in many aspects of the development of the necessary “hardware” for the economy, the not-for-profit organisation reckons that significant progress has already been made with Malaysia now boasting modern and world-class facilities in several sectors such as roads, airports, and utility services.

The challenge for the country now, it says, is to have its people empowered with the right skills and capabilities to take the country to a higher plane of economic progress.

And the key to doing that lies in effective and high-quality leadership, Peshawaria and his team members namely, ICLIF's managing director, who specialises in corporate governance, John Zinkin, and chief operation officer Tunku Alizakri Alias tell StarBizWeek in an exclusive interview.

Now, there are many different theories as to what constitutes effective and high-quality leadership.

For Peshawaria and his team, leadership is simply a commitment to creating a better future be it in the public or private sectors - and this has to be backed by a sound system of corporate governance to ensure the sustainability of success.

“A leader is someone who envisions a brighter future and works hard to bring the vision into reality; it is not about position, power or the right to give commands,” explains Peshawaria, who is also the author of Too Many Bosses, Too Few Leaders.

Positive leadership

As it is, the Malaysian society, like most of its Asian counterparts, is one that is still steeped in a “high power distance” culture. This is an environment where so-called leaders, or people in position, especially in the corporate world, do not expect to be challenged; their instructions must be carried out and the underlings are expected to conform without question.

According to ICLIF, such an environment will not encourage ideas to flow, and where ideas from different sources are not allowed to flourish, innovation will be stifled. That, it says, will have negative implications on the country's economic progress and competitiveness.

There is a direct relationship between a country's capacity for innovation and its competitiveness ranking, experts say. International agencies such as Switzerland-based World Economic Forum (WEF) and the Institute of Management Development (IMD), for instance, take the capacity for innovation into account when gauging a country's level of competitiveness.

In WEF's recently released Global Competitiveness Report 2012-2013, “insufficient capacity to innovate” is found to be one of the Top 10 most problematic factors that executives face when doing business in Malaysia.

Alizakri says: “To enhance the capacity for innovation, issues relating to the quality of leadership need to be addressed.”

Make no mistake, creating a culture of positive leadership is not an easy task, as ICLIF concedes. Inculcating such a value system takes time and requires the collective action of all stakeholders in an economy.

ICLIF is expected to publish the inaugural Asian Leadership Index in the first quarter of next year. The study, which will look at 18 countries across Asia, will probably give us an idea of where we stand in terms of the quality of leadership we have in the country.

Catalysing transformation

According to ICLIF, the importance of quality leadership cannot be underestimated, as it not only helps to foster an environment of innovation and creativity, but it is also one of the keys to human capital development.

“When we have the right sort of leaders, those who can create a motivating work environment and enable people to explore their full potential, talent will come back. We can reverse the brain drain,” Zinkin argues.

The lack of skilled talent to drive Malaysia's economy up the value chain has long been recognised as a major challenge faced by the country. It is no secret that the country has been losing much of its talent to other countries in a process economists call “brain drain”. The challenge is exacerbated by Malaysia's existing education system that has not been able to churn out sufficient critical thinkers and skilled workers to meet industry demand.

According to WEF, an “inadequately educated workforce” is the third most significant problem faced by businesses in Malaysia. This is just behind the problems of an “inefficient government bureaucracy” and “corruption” that businesses also face.

On a positive note, the Malaysian Government has been investing in various initiatives to address the challenges in its economy. Investments in organisations like Talent Corp, for instance, represent a serious effort to address the challenge of talent deficit.

“Brain drain and the lack of skilled workforce is not a problem unique to Malaysia. Many countries are also facing the same problem, but few are doing as much as Malaysia in addressing the issue,” Peshawaria explains.

ICLIF is convinced that the various growth policies and initiatives that the Government has proposed can put Malaysia on the right track of growth if executed well.

“The key is making sure we follow through, and we follow up,” Zinkin says.

Next week will commemorate the second anniversary of Malaysia's Economic Transformation Programme (ETP).

In the first year of the ETP implementation, Malaysia made significant improvement and saw its competitiveness ranking among 142 countries by the WEF rise to the 21st spot in 2011 from the 26th spot among 139 countries in the preceding year.

Malaysia's competitiveness ranking this year, however, dropped four notches to the 25th spot, overtaken by the United Arab Emirates, New Zealand, Luxembourg and South Korea. As those countries made progress, Malaysia's score had remained pretty much the same.

For the Government, the drop in the relative ranking seems to have served as a wake-up call. Prime Minister Datuk Seri Najib Tun Razak, for one, has stressed the need for Malaysia to improve on all fronts at an even faster rate now for the country's economy to continue moving ahead.

According to Centennial Asia Advisors Pte Ltd's partner/head of economic research Manu Bhaskaran, improving competitiveness is a structural and long-term matter.

“Malaysia has been undertaking several initiatives such as the ETP and the development of economic corridors to boost its economic performance, which is good. But more needs to be done,” Manu explains.

Besides retaining and attracting talent to develop a stronger edge in human capital, Manu asserts that Malaysia needs to have clear policy action on the fiscal dimension. This involves the implementation of a goods and services tax, or GST, and a subsidy rationalisation plan to address the country's fiscal strength.

“There are also legacy issues related to less successful economic initiatives from the past which need to be resolved so that they no longer exert a drag on the rest of the economy,” he points out.

Being a highly open economy, Malaysia's prospects for the next few years will hinge greatly on the state of the global economy. Prevailing indicators point to challenging days ahead, as global growth, weighed by the sluggish US economy, deepening eurozone crisis, and China's slowdown, among others, will likely be less supportive to Malaysia.

“As one of the most trade-exposed economies in the world, Malaysia cannot escape the consequences of a global slowdown. At best, it can mitigate this effect through fiscal spending as has happened of late,” Manu says.

But for the long term, he argues, reforms remain the key for Malaysia to achieve sustainable strong growth.